Tuesday, January 24, 2012

LAW OF CONTRACT by Zulfiqar Ali Chandio

Law of Contract is that branch of commercial or business law, which ensures that the promises made by one person to another in respect of any transaction shall be performed by the parties exactly in accordance with the arrangement between them. And incase of any default the party at fault shall compensate the innocent party.

According to Sir William Anson “Law of Contract is intended to ensure that what a man has been led to expect shall come to pass and that what has been promised to him shall be performed.”

Contract Act Of Pakistan
The laws relating to contracts in Pakistan is contained in the Contract Act, 1872.

What is a Contract?
“Every agreement and promise enforceable at law is a contract.” – Pollack

“A contract is an agreement creating and defining obligations between the parties.”- Salmond

What is a Contract?
A contract is an agreement between two or more persons creating rights and duties, which is enforceable by law.

What is an Agreement?
Agreement is defined as “every promise and every set of promises forming the consideration for each other is an agreement.”

Agreement is said to be enforceable if it is recognized by the court of law.

Two main characteristics of an Agreement
Plurality of persons - Two or more persons

Consensus ad idem -  identity of minds

Types of Agreement
Social agreement

Legal agreement

What is a Promise?
When the person to whom the proposal is made signifies his assent there to, the proposal is said to be accepted thus a proposal when accepted becomes a promise.

Difference between Agreement and Contract
Agreement = offer + acceptance
Contract = agreement + enforceability

1.1. Offer and acceptance: for an agreement there must be a lawful offer by one party and a lawful acceptance of that offer from the other party.

2.  Legal relationship: it arises when parties know that if one of them fails to fulfill his part of the promise then he shall be liable for the failure of a contract.
3. Lawful consideration: it means that there should be something in return for both the parties.
4.   Capacity of parties: the parties to an agreement must be competent that is they must be of the age of maturity as well as of sound mind. 
5.5.  Free consent: the parties must have agreed upon the same thing in the same sense and that the consent must be free of any coercion, undue influence, fraud misrepresentation or mistake.

6.   Lawful object: the object for which the agreement has been entered into must not be illegal, immoral or must not imply injury to the person or property of another.
7.7.  Writing and registration: contract can be oral or in writing. But in case if it is written then it should also be registered by the court of law.

8.8.  Certainty of terms: the terms of an agreement must be clear, complete and certain.
9.  Possibility of performance: a contract must be capable of being performed. It should not be an act, which is legally or physically impossible to perform.

A valid contract is an agreement enforceable by law. An agreement becomes enforceable by law when all the essentials of a valid contract are present.
A contract is said to be voidable when the consent of one of the parties is not free. It is a valid contract until it is avoided by the party having the right to avoid. Once it is avoided it becomes void. But if the party chooses to affirm it, the contract continues to be valid.

Circumstances under which a contract becomes voidable:

a. When the consent of one or more of the parties to a contract is obtained by coercion, undue influence or fraud.

b.When a person promises to do something for another person but the other person prevents him from performing his promise.

  A contract, which is ordinarily enforceable at law but cannot be so enforced due to the happening of a certain event, is known as a void contract.
 Circumstances under which a contract becomes void;
a.Impossibility of performance
b.Subsequent illegality
 An unenforceable contract is one, which is valid but cannot be enforced in a court of law because of some technical defects such as absence of writing, registration requisite, stamp, etc.
 An agreement is illegal when its performance is forbidden by any law of the country.
 An express contract is one in which the parties directly state the terms of the contract orally or in writing at the time the contract is made.

 Implied contract is one, which is not made by words, written or spoken. It arises when one person without being requested to do so, renders services under circumstances indicating that he expects to be paid for them and the other person knowing such circumstances accepts the benefit of those services.
 In a Quasi contract the rights and obligations do not arise as a result of an agreement b/w the parties but the law imposes certain obligations under some special circumstances. It is based upon the principle of equity that a person shall not be allowed to get benefit at the expense of another.

According to the Contract Act “ An agreement not enforceable by law is said to be void.”

A void agreement does not create legal relations among the parties and is ab – initio from the beginning.

In case of void agreement there is absence of one or more essentials of valid contract.
Obligation to parties
When an agreement is discovered to be void any person who has received any advantage under such agreement is bound to restore it to the person from whom he received it.
A promises to purchase the horse of B for rupees 4000. The horse was dead at the time of bargain, though neither party was aware of the fact. The agreement is void and B must repay rupees 4000 to A.


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